Presented By

Beware of
How You
Treat
Your Music
Teachers

Alan M. Friedman, CPA

and Daniel Jobe
Friedman, Kannenberg &
Company, P.C.

Session Objectives
Pros & Cons between
classifying music teachers as
employees vs. independent
contractors
Criteria used to determine the
employment status of a
worker by most tax authorities
Classification guidance

Employee Designation
Pros
Control work schedule
Control teaching
methods
Control teaching rates
Control compensation &
benefits
Limited issues with tax
authorities

Cons
Burden of payroll taxes
Burden of
unemployment taxes
Burden of workers comp
insurance
Burden of health
insurance, retirement
and other benefits
without discrimination

Independent Contractor Designation

Pros
No payroll taxes
No insurance costs
No retirement benefits
No employment benefits
No payroll accounting
Minimized tax reporting
(1099-MISC at year-end)

Cons
No control over work
schedule
No control over
teaching methods
No control over
teaching rates

BEWARE
The incorrect classification can cause
you to be held responsible for
All back federal & state payroll

taxes
All back unemployment taxes
All back employment benefits

BADVERY

IRS Guidelines

The IRS updates

Publication 15A each year
with a section entitled
Who Are Employees?

Status is determined
based on the degree of
control in 3 categories:
1. Behavioral Control
2. Financial Control
3. Type of Relationship

Understandi
ng the Three
Categories

I. Behavioral Control
Facts that show
whether the
business has a
right to direct
and control how
the worker does
the tasks for
which the worker

When and Where to Work

Employee: Required to work
set hours at a specific assigned
location
Contractor: Retains the right
to complete work at any time
and rents or leases a location
where work is performed

Instructions
Employee: Must follow
mandatory instructions as to
where, when and how to
perform work
Contractor: Performs work
based upon independently
established procedures or

Services Rendered Personally

Employee: Required to render
services personally
Contractor: Has assistants or
employees while retaining the
right to hire others to perform
the required work

Hiring, Supervising and Paying

Employee: Does not supervise
or hire others
Contractor: Hires assistants
at his/her expense to perform
all or part of project

Order or Sequence Set

Employee: Required to
perform task in a set manner,
routine or schedule
Contractor: Has full discretion
over routine or manner in which
to perform services

Training
Employee: Receives and/or is
required to receive training
Contractor: Skilled
professional requiring no
training to adequately perform
services

II. Financial Control

Facts that show
whether the
business has a
right to control
the business
aspects of the
workers job,
such as

Business Expenses
Employee: Business or
training expenses are paid or
reimbursed
Contractor: No
reimbursement for business or
training expenses

Significant Investment
Employee: Does not invest in
facilities and/or equipment used
to perform work
Contractor: Possesses and
invests in facilities and
equipment to perform services

Services Available to General Public

Employee: Services are not

offered to general public and
points toward control
Contractor: Offers services to
public, advertise, and are free
to seek out business
opportunities

Payment to Worker
Employee: A person
guaranteed a regular wage paid
at regular intervals
Contractor: Compensation
determined separately by
project or based on fixed fee

Realization of Profit or Loss

Employee: Compensation for
services at fixed rate regardless
of profitability
Contractor: Shoulders the
possibility of incurring a loss
and realizing a profit

III. Type of Relationship

Facts that
show the
parties type
of relationship,
such as

Regular and Continuous Relationship

Employee: Services are part

of a continuing relationship
Contractor: Provides services
and contracts for separate and
distinct projects, not on
continuing basis

Right to Discharge
Employee: Can be discharged
at any time with no liquidated
damages
Contractor: Cannot be
discharged other than for
failure to perform contracted
service

Right to Terminate
Employee: May terminate
relationship at any time
Contractor: May terminate
work relationship only upon
completion of contract or
breach by other party

Key Aspect of the Business

Employee: Works for the
business in a capacity assigned
by employer
Contractor: The work
performed is the main revenue
source and integral to the
sustainability of the business

Some
Advice &
Guidance

NDEPENDENT CONTRACTOR

EMPLOYEE
Which Form Do I Use?

Structure the Relationship

To best assure a favorable outcome in
the event of tax scrutiny, employers
should:
Have written contracts or arrangements
with their music teachers
Have an attorney review all documents
If need be, request assistance from the
IRS in determining status by filing a

IRS Guidance
In a 1970 Court Case, the IRS
challenged the worker status of
music teachers at a music
conservatory. These teachers
taught students in accordance with
a curriculum provided by the
school, as well as provided private
instruction to students as part of a

IRS Guidance
Upon completion of their audit, the IRS
issued Revenue Ruling 70-338 which
stated Teachers instructing regular
classes at a music conservatory for regular
remuneration are employees of the
school; however, teachers who instruct
pupils in private lessons in return for a
percentage of the fees collected by the
conservatory are not employees.

Need more help?

Contact Shaun Conrad after this

seminar